This is a course of 25 short webcasts (about 12-20 minutes
apiece), designed both to capture what I do in my regular semester-long
valuation class and to supplement my books on valuation. With each session, you can download
slides for that session and a post-class test to go with it (and solutions). If you have my book, the relevant sections of the book are highlighted. The first part are the webcast related to the class and the second part are tools webcasts, designed to help you apply the concepts to real companies. The class webcasts are on YouTube and you will need to be online, to watch them. The in-practice webcasts are downloadable to your computer or device and can be watched at your convenience. I have also created a version of this class on iTunes U, and you can get to that class by clicking here.

Valuation Tools

While it is nice to talk about the big picture of valuation , and I do, in my classes, it is the nuts and bolts issues that trip us up. In this section, I will be posting webcasts that can help you navigate some of these nuts and bolts questions.

Topic

Description

Webcast

Supporting material

Getting data

Before you can do valuations and process information, you have to first collect the information. In this webcast, I look at ways to get information on a company's filings, macro economic indicators and sector-wide data.

Much of the raw material (data) that we use for valuation comes from annual reports and financial filings. (10, 10Q). In this presentation, I lay out a template for extracting information from these filings, separating the stuff that matters from the stuff that does not, using P&G in September 2012 as an illustration.

When valuing a business, you want the most updated information you can find. But what if your most recent annual report or 10K is several months old? The solution is to create a trailing 12-month financial statement.

I have been a strong proponent of implied equity risk premiums, forward looking estimates that are extracted by looking at stock prices today and expected cash flows in the future. While I have an implied equity risk premium spreadsheet on my website, I try to get some of the mystery out of both the process and the inputs in this webcast.

Accounting standards allow companies to classify some leases as operating leases, primarily based upon the degree of ownership vested in the lessee. Operating lease expenses are treated as operating expenses, not financial expenses. The sensible thing to do is to convert lease commitments to debt. In the process, though, you have to redo your financial statements.

R&D is the ultimate cap ex, if you define capital expenditures as investments designed to create benefits over many years. Accountants incorrectly treat R&D as operating expenses. The logical fix is to convert R&D from an operating to capital expenses, though this will also lead to a restatement of both the income statement and the balance sheet.

The return on invested capital is more than an accounting number. If computed right, it measures what a firm is generating as a return on its existing projects and provides a key indicator (though not always a definitive one) of what it will generate on future investments. That, in turn, will determine how much value growth will add (or destroy) in the company. If you don't know this number for a company, your valuation has no moorings.

The terminal value is a "big" number in DCF valuation, but it is subject to misuse and manipuluation. In this session, I take a look at how you can detect problems with a terminal value computation (in both your own DCFs and in other people's DCFs)

When a company uses options to compensate employees or to pay suppliers, it saves itself cash that it would have used otherwise but it does "dilute" the value of the equity held by common stockholders. When valuing a company with a significant option overhang, the right thing to do is to value the options as options and subtract that value from the estimated value of equity, before dividing by the number of shares outstanding.

The "value" embedded in a multiple can be the value of the entire firm, the value of its operating assets (enterprise value) or the value of the equity. In this webcast, we look at the differences between the three and why you may use one over the other.

The exclusive rights to produce a product or provide a service can provide the owner with "optionality", allowing for a premium on top of a discounted cash flow value. In this webcast, I look at a simplified example.

With money-losing companies, with a lot of debt, equity takes on the characteristics of a call option (to liquidate the business). In this webcast, I look at the mechanics of applying this approach to a troubled company.